Hi,

The following is my tax situation for 2011.
I was on F1-OPT visa from Jan 2011-Sept 2011. My visa status changed to H1-B in Oct 2011. I also got married in Oct 2011, hence, as on Dec 31, 2011, I was married. Since I did not satisfy the requirements of substantial presence test specified in IRS pub.519, I decided to file 4868 extension so that I could use the First Year Choice rule and apply as a resident. Effectively, I was on non-resident from Jan 2011 - Sept 2011 and now that I pass the substantial presence test, I can apply as a resident for the period from Oct 2011 - Dec 2011. Hence, I am a dual-status alien.
I read through IRS publications, however, I still have some questions. I would greatly appreciate if someone could answer them.

1. What forms do I need to submit with my tax return? I am under the impression that I need to submit 2 forms, 1040NR for the Jan-Sept 2011 period, and 1040 for Oct-Dec 2011.
2. I received only one W-2 form. Should I manually calculate and enter the appropriate amounts in the 2 forms?
3. Can I file as Married filing Jointly for the 1040 form?
4. Can I use all the allowed exemptions for both 1040NR and 1040 returns?

Thanks.

You have a choice. You can:

1) File a dual-status return BY YOURSELF, filing as Married Filing Separately and claiming your wife as a dependent.

OR

2) File JOINTLY with your wife and you both sign a statement that says you CHOOSE to be treated a resident aliens for all of 2011.

OR

3) File as a non-resident alien and NOT claim your wife at all (unless you are from India, in which case you can claim your wife as a dependent).

However, there is another consideration. Did your employer withhold FICA (Social Security and Medicare) taxes during the first nine months of 2011? If yes, you MUST file either as a non-resident alien or dual-status, THEN file Forms 843 and 8316 to get the imporperly-withheld FICA taxes back (assuming you cannot convince your employer to refund the FICA taxes). The Medicare taxes are withheld at 1.45% and the Social Security is withheld at 4.2%, so a simple check of the W-2 should make it clear whether these taxes were withheld for the entire year or just for 1 Oct through 31 Dec 11.

Another consideration: If you file jointly with your wife as residents, and if you OR your wife has foreign bank accounts which, in aggregate, have MORE that $10,000 in them at ANY time in 2011, you become liable to submit the FBAR (Foreign Bank Account Report), a report for which the 30 June 2012 deadline has already passed. If you file dual-status or as a non-resident alien, the FBAR does NOT apply to you.

If you email me your details (my email address is in my profile if you cannot se it below), I can be more precise about what you should or should NOT do.

Thank you for your help, AtlantaTaxExpert.

I have decided to file using the 2nd option that you mentioned. I just had another question. If I understand you correctly, I should use Form 1040, and I will be able to claim all deductions and exemptions as a US citizen/resident would when filing as Married Filing Jointly for the entire 2011 tax year. Is my understanding correct?

Also, I researched FBAR on the IRS website and it seems like it is not applicable in my tax situation. However, my wife was working in India for the first 8 months of the year and received wages and has paid taxes in India. She joined me here in the US only in November 2011. Do I have to treat this as worldwide income and report this income while filing as Married filing Jointly?

I checked my W-2 and it shows that FICA taxes were withheld only from Oct 2011 onwards.

Yes, you file Form 1040 when you file jointly.

Since your wife earned Indian income, that has to be claimed as well, but you can claim the Foreign Tax Credit (Form 1116) to mitigate the extra tax by claiming a credit for the Indian income taxes she paid.

You do NOT report that income on your state return, however, because it was earned OUTSIDE of the borders of the state where you now work and live.

Your wife also needs to submit Form W-7 to get an ITIN. She must sign the W-7 and submit it with a passport photocopy that is certified as a true copy by the Indian government. That can be done by the Indian embassy or Indian consulate. There are consulates in Houston, Chicago, New York and (I believe) Los Angeles, so you will need to call them and arrange to get the certified photocopies in the mail.

F you want my professional help, email me at the email address below (my email address is in my profile if you cannot see it below).

Thanks for the guidance, AtlantaTaxExpert.

I will be filing using Form 1040. I have received a 1042-S form from a financial institution and it shows that federal tax has already been withheld for the income listed on it, with income code 06 (Dividend income). However, I am not sure where to report this income as I could not find any information related to 1042-S in Form 1040 instructions. Where do I report this income? Should I ask the financial institution to send me a 1099-DIV form instead?

Since 1042s are used to report income for non-resident aliens, they do not appear explicitly on form 1040. Just enter it as if it were a 1099DIV.

Thanks for the reply, taxesforaliens.

So I mention the income listed on 1042-S on 1040/Line 9a, enter it in Schedule B as a dividend and also add the federal tax withheld to the amount on 1040/Line 62. Please let me know if this would be the right way of reporting this information.

Yes, that is correct.

Thank you, tax experts for your advice.

I had some questions related to Form 1116 since my wife worked in India from Jan to Aug 2011.

1. Is it mandatory to file Form 1116? Can I avoid this form if I do not want to claim the foreign tax credit? I am asking this because the taxes paid in India amount to approx. $70 and this might not give much benefit and I will have one less form to file.
2. If I choose to file this form, what supporting documents related to the Indian income do I need to submit? I could not find information about any specific documents to submit in the Form 1116 instructions.

1) You are NOT required to file Form 1116. If the benefit of the credit does not appear to be worth the effort, then you can omit it.

2) There is NO requirement to submit any support forms. You MAY need to prove that you actually paid the taxes, but ONLY IF the IRS asks for such proof, which rarely happens.

Thank you for all your help, tax experts.

I have to file Form W-7, but I am not sure which option to choose for the 'Reason you are submitting Form W-7' field since I am using First-Year choice and filing MFJ resident aliens for entire tax year. Should I choose c,d or e? These are:

(c) U.S. resident alien (based on days present in the United States) filing a U.S. tax return
(d) Dependent of U.S. citizen/resident alien
(e) Spouse of U.S. citizen/resident alien

Also, since we are filing as residents, should I enter my wife's visa information in box 6c?

Regards.

Select (e) for your spouse's ITIN.

You are her sponsor, so put YOUR name and SSN on the blank line after (e).

For the rest of the form, put your wife's information. SHE signs the form.